Indian Rupee Forecasted Higher by Barclays: INR Supported as Brazil Intervenes in Global Currency Markets

The Brazilian Central Bank will buy US$60bn worth of reals in the market to support its weak currency, this has aided INR.

A look at the latest Indian Rupee forex rates shows that INR has enjoyed a relief rally on Friday:

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Indian Rupee forecast from Barclays

Today we hear from Siddhartha Sanyal who says the Indian Rupee could be boosted should India surprise international markets with a better than expected  current account deficit.

Sanyal says:

"We believe India’s current account deficit has the potential to surprise favourably and have cut our FY 13 - 14 deficit forecast to ~USD68bn (from ~USD80bn). This is well below the consensus estimate of USD 76bn and the average of USD83bn in the past two fiscal years.

"We also think our forecast could be conservative.

"We expect the INR at 61/USD in 6-12m,which partly reflects a current account improvement. However, given the present
fragile market sentiment, the underlying improvements in India’s current account may go unnoticed.

"Moreover, near-term INR weakness could persist, especially in the absence of policy initiatives to quickly boost capital flows. Indeed, we think recent policy steps have been relatively ineffective at generating near term flows, and are a drag on the INR."

Central Bank intervention speculation supportive of INR

Ipek Ozkardeskaya at Swissquote says:

"A highly volatile week comes to its end with emerging market currencies broadly recovering the heavy losses recorded post-FOMC minutes released on Wednesday.

"As the emerging countries’ central banks jump into the game to support their tumbling currencies, the US 10-year treasury yields strengthens on Fed “tapering” expectations."

We see more distress in Emerging Market currencies

Meanwhile, Stephen Gallo at BMO Capital Markets warns that emerging market currencies like the Indian Rupee could see more turmoil in coming weeks:

"We foresee more distress in the developing market FX space in the run-up to and during QE tapering, but we’re currently disposed to view recent weakness here as part of the adjustment, and the concurrent buying of the domestic currencies by their respective central banks as more of a “smoothing” exercise rather than a “preventative” one.

"Turkey, Brazil, India, South Africa, and Indonesia, all run sizeable current account deficits, so although policy makers are in for difficult battles ahead, these adjustments triggered by a forthcoming, gradual halt to Fed balance sheet expansion should largely be viewed as a relief over the medium-term, at the risk of sounding a bit masochistic."